This month’s cover story raises the question of whether platforms should prevent investors from buying into certain funds or trusts, if they deem them not to provide fair value or to put consumers’ capital at unreasonable levels of risk.
While the topic is controversial, with strong opinions on either side of the debate, it highlights the continuing shifts occurring across the UK regulatory landscape.
Fidelity began ‘switching the lights off’ of certain products on its platform in July this year – the same month the FCA’s Consumer Duty was rolled out. The regulation aims to make sure financial services firms ‘take all reasonable steps to avoid causing foreseeable harm to customers’; ‘take all reasonable steps to enable customers to pursue their financial objectives’; and ‘act in good faith’.
The regulation builds on the FCA’s Assessment of Value reporting requirements, which were launched in 2019 and require all firms to carry out a published assessment at least annually across their product ranges, focusing on charges and whether they are justified relative to service and performance.
Just last month, the FCA published its UK specific sustainability disclosure requirements (SDR) and labelling regime rules, to be implemented from May next year. In total, there are four new proposed fund labels, including ‘sustainable focus’, ‘sustainable improver’, ‘sustainable impact’ and ‘sustainability mixed goals’ – the latter of which is focused on multi-asset portfolios. SDR will also scrap the requirements for firms to outline a causal link between stewardship and asset improvements.
There can be no doubt all of the above is good news for investors. Holding asset management firms to account is vital – especially as the number of available funds grows year on year, despite rising industry and product consolidation. But unnecessary – or even poorly judged – regulation can upset the fragile ecosystem of which players are allowed in the game, paradoxically limiting safe and viable options for investors.
Less than two weeks ago, the FCA released interim measures to protect investment companies from being unfairly penalised by cost disclosure regulation. The ‘how’ and ‘why’ is a long story, but it is the first stepping stone in finding a resolution to a regulatory-induced problem that has plagued investment trusts for several years.
The industry has a duty to keep tabs on fund managers and hold them to account wherever possible, but it must do the same for the regulator, too.